February has been quite a month for digital currencies. As Elon Musk used his efficient-markets-theory busting power over twitter traders to send Bitcoin to new highs, in China, authorities sent some lucky citizens a happy new year gift of 200 digital renminbi. This marks the latest phase in the development of an ‘e-yuan’ (officially, the catchily named Digital Currency Electronic Payment or DCEP), part of a spearhead of Central Bank Digital Currency experiments around the world. According to the Bank of International Settlements, 86% of Central Banks are exploring them, with the Bahamas launching the first live version last year.

CBDCs could be a big deal. China, an economy already largely turned away from traditional cash, hopes that a well-implemented launch might allow it to compete with the US Dollar. Given China’s technological presence in a range of emerging and frontier markets, some analysts think it might catch on. Moreover, retail CBDCs could give central bankers an array of new tools: direct payments to citizens, improved interest rate implementation, real-time data and robust money laundering and counter-terrorism measures. This raises obvious privacy questions, but a widely available ability to hold risk-free assets with a central bank could fundamentally change the banking system.

Bitcoin and other cryptocurrencies have a lead, fans, and publicity from the likes of Mr Musk. Yet central bankers remain unmoved. When the BIS asked them about the future of cryptocurrencies, responses suggested: “trivial use… by niche groups”. Stablecoins, like Facebook’s Diem, is sparking increasing interest, but CBDC’s could have a trump card: if central banks can align the legal framework, they could become legal tender. The political clout of central banks, the corporate might of big tech and the first-mover advantage of existing crypto makes for an interesting setup. Bitcoin steals more headlines today. But the future of currency is a highly complex one. The era of the central banker isn’t done yet.

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